Oxi day for Greece

Trevor Greetham

6 July 2015

The Greek people are saying a resounding 'No' to further austerity by a margin of 61% to 39% with three fifths of the votes counted. As with the UK general election, opinion polls were finely balanced and dead wrong.

The Greek public are strongly pro-euro but they have endured six years of recession, and creditor threats over the last week have alienated many. For Prime Minister Alexis Tsipras, this is a defining moment. He will try to strike a better growth-oriented deal for Greece but attitudes have hardened in Europe and there is no guarantee he will succeed.

The referendum was never going to end uncertainty for markets but this outcome increases the likelihood of prolonged bank closures, civil unrest and euro exit. The euro is likely to sell off further. The European authorities will respond forcefully to limit market contagion if necessary though they may not need to do more than talk as the spill over into other peripheral bond markets has been very limited to date.

Greece's democratic rejection of the austerity spiral casts serious doubt on the long term political viability of the euro area - especially if Greece leaves the euro, devalues and eventually regains control of its destiny in the way Iceland has.

This is a long term story, however. In the shorter term it is hard to see developments in a country making up about one percent of European Union GDP and one tenth of a percent of its stock market capitalisation having a lasting impact on world markets.

In fact, with investor sentiment towards the depressed end of the range, Greek stress may be creating a short term buying opportunity for global stocks. The fundamentals are positive. Monetary policy globally is still very loose and the drop in energy prices over the last year should underpin a continued expansion in the world economy.

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